THE Australian dollar rallied on Friday following Reserve Bank governor Glenn Stevens's appearance before a federal parliamentary committee.
The currency was trading at US103.13¢, up from US102.35¢ on Thursday.
The OxForex chief currency strategist, Jim Vrondas, said the dollar moved higher during Mr Stevens' six-monthly appearance before the House of Representatives standing committee on economics.
"Those comments were somewhat upbeat about the economy so we saw a pretty immediate reaction," Mr Vrondas said.
He said Mr Stevens's testimony had reduced expectations that the RBA would cut the cash rate further in the next few months.
"The comments about having a good deal of interest rate stimulus already in the pipeline, that's the main bit that gave the market a bit of positive sentiment towards the currency," Mr Vrondas said.
The RBA cut the cash rate 1.75 percentage points between November 2011 and last December.
Mr Vrondas said the currency was unlikely to rise above US103.50¢ to US104¢ and could ease by Saturday morning.
Meanwhile, three-year bond futures prices were weaker following the positive comments.
The March 10-year bond futures contract was trading at 96.485 (implying a yield of 3.515 per cent), unchanged from Thursday.
The three-year contract was at 97.100 (2.900 per cent), down from 97.130 (2.870 per cent). The RBC Capital Markets fixed income strategist, Michael Turner, said three-year bond futures sold as a result of Mr Stevens's twice yearly appearance before the economics committee.
"We've had a bit of a rally over the past few sessions, so it was enough to see futures drift off," Mr Turner said.
"[Mr Stevens] was pretty keen to highlight how much they've done already, so markets took that as a sign that they wouldn't mind taking a breather should the data permit."
Mr Turner said the key local driver for Australian bond markets next week would be the release of capital spending data for the December quarter on Thursday.